HALLIBURTON BV MERKEZI HOLLANDA ANKARA MERKEZ TURKIYE SUBESI v. SHENG YI (HK) TRADE CO., LTD AND OTHERS

HCA 1627/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1627 of 2016

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REASONS FOR DECISION

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1.  The plaintiff claims to be the victim of an international fraud by which imposters procured the plaintiff to transfer US$4,977,000 to the 1^st defendant’s bank account held in Hong Kong with HSBC on 15 June 2016. The plaintiff alleges that the 1^st defendant then caused tranches to be transferred to the 2^nd, 3^rd and 4^th defendants, who then transferred tranches to the 5^th to 17^th defendants.

2.  The plaintiff applied by summons, dated 3 November 2016 for default judgment against the 1^st defendant, the 3^rd to 13^th defendants and the 15^th, 16^th and 17^th defendants, a vesting order in respect of frozen monies held in the defendants’ respective bank accounts and a continuation of injunctions which the plaintiff has obtained in aid of execution.

3.  The application was before me on 24 November 2016.  The 2^nd and 4^th defendants were represented and the other defendants were absent.  The 2^nd defendant has filed a Defence.  The plaintiff’s counsel told me that the plaintiff was not seeking judgment against the 10^th defendant.  The plaintiff asked that the summons be adjourned in respect of the 2^nd, 4^th, 5^th, 6^th and 7^th defendants.  The plaintiff asked for summary judgment against the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants.

4.  The plaintiff applied for leave to amend the summons.  I granted leave and I made the following orders:

(1) Final judgment be entered for the plaintiff against the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants.

(2) The Amended Summons for application for final judgment against the 4^th, 5^th, 6^th and 7^th defendants be adjourned to a date to be fixed with three hours reserved in consultation with counsel’s diaries.

(3) The plaintiff’s costs in this action in respect of the claims against the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants, including all costs reserved and the costs of this application be to the plaintiff to be taxed if not agreed.

(4) With respect to the 2^nd, 4^th, 5^th, 6^th and 7^th defendants, costs reserved.

(5) Liberty to apply for further directions.

(6) The plaintiff to serve the Amended Summons and supporting affirmations on the 2^nd defendant within three days of the date of this order.

(7) Order in terms of paragraph 2 of the Amended Summons.

(8) Order in terms of paragraph 3 of the Amended Summons, as amended by me.

5.  Following are brief reasons for my orders.

6.  No defences have been filed by the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants. Order 18, rule 13 of the Rules of the High Court provides that an allegation of fact made by a party in his pleading is deemed admitted by the opposite party unless it is traversed by that party in his pleading or a joinder of issue operates as a non‑admission. Such deemed admission of allegations raised in the Statement of Claim is the basis upon which default judgment is entered.

7.  I am satisfied by the evidence that the plaintiff has been a victim of the fraud alleged and that the monies have been disbursed as alleged.

8.  Victims of fraud would prima facie have a valid claim in money had and received and may assert a proprietary claim against the recipients insofar as the fraudulently obtained funds are traceable into their hands, unless the recipients can establish the defence of bona fide purchaser for value without notice:  Leonard Koutsomihalis & anor. v Aki Enterprises & anor. unrep., HCA 2509/2014, 16 June 2015 per Chow J at para 22; Zimmer Sweden AB v KPN Hong Kong Ltd & anor. unrep., HCA 2264/2013, 2 May 2014 per DHCJ Yee at paras 89‑93.  See also: Arrow ECS Norway AS v Xin Cheng Holdings (Intl) Co Ltd unrep., HCA 239/2016, 12 May 2016 per Au‑Yeung J at para 13.

9.  The court’s approach in granting default judgment in cases of fraud has been set out in Guaranty Bank & Trust Co v Zzzik Inc Ltd unrep., HCA 1139/2016, 18 July 2016 at paras 28‑33, 37.  A similar approach was adopted by Recorder Lisa KY Wong SC in Mesirow Financial Administrative Corp v Best Link Industrial Co Ltd unrep., HCMP 1846/2015, 25 January 2016 at paras 35‑38.

10.  Pursuant to section 52(1) of the Trustee Ordinance, Cap 29, an order would vest the right to sue for and recover funds, as a thing in action, in the plaintiff.  The court may make a vesting order as to trust property where it is impossible or difficult to deal with the property without such an order and may under section 52(5) make declarations and give directions concerning the manner in which the right to transfer the thing in action vested under the provisions of the Ordinance is to be exercised:  Guaranty Bank & Trust Co v Zzzik Inc Ltd at paras 39‑40.

11.  The facts pleaded in the Statement of Claim enable the plaintiff to assert a proprietary interest in the traceable proceeds of the funds and to claim for their return on the basis that the funds were obtained by fraud or fraudulent misrepresentation.

12.  As against the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants, the facts pleaded in the Statement of Claim are deemed to be admitted under Order 18, rule 13.

13.  The 1^st defendant’s position is straightforward.  It received the whole of the funds (US$4,977,000) and is accordingly liable to repay the same amount to the plaintiff.  Also, the 1^st defendant held the funds on constructive trust for and on behalf of the plaintiff and the plaintiff is entitled to assert a proprietary interest in them.

14.  Regarding the 3^rd defendant, the claim is also straightforward and is based on tracing the funds dissipated from the 1^st defendant’s account into its account.

15.  The claims against the 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants involve tracing the flow of funds dissipated from the 2^nd and 3^rd defendants’ account after the funds were mixed with other funds in the 2^nd and 3^rd defendants’ accounts. 

16.  In the Statement of Claim and in the summons for default judgment, the plaintiff has applied the pro‑rata/rateable approach to tracing the proceeds of the funds from mixed funds into the hands of the 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants.  I am satisfied that this is a fair and efficacious manner of apportioning liability amongst the 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants.

17.  Further, the declarations sought by the plaintiff are necessary and will serve a genuine purpose, as it is not clear whether the 1^st, 3^rd, 8^th, 9^th, 11^th, 12^th, 13^th, 15^th, 16^th and 17^th defendants have any other creditors.  The plaintiff’s proprietary claim over the funds or their traceable proceeds should not be subordinated to a mere monetary claim which ranks pari passu with other unsecured creditors.  This approach was adopted in Guaranty Bank & Trust Co v Zzzik Inc Ltd and Mesirow Financial Administrative Corp v Best Link Industrial Co Ltd.

18.  I consider there is no real prospect that any of the defendants will voluntarily comply with any direction to transfer the portion of the funds held on trust to the plaintiff.  It will be difficult, if not impossible, to deal with the funds unless a vesting order is made.

19.  HSBC indicated by letter, dated 15 November 2016, that it agrees to be bound by any order made.

20.  I also consider it appropriate to continue the Mareva injunction.